New Delhi/Bangalore: The ministry of defence (MoD) has cleared a proposal to sell as much as 10% in state-owned Hindustan Aeronautics Ltd (HAL).

“This is just an in-principle clearance. Approvals from the finance ministry need to come through and the modalities need to be worked out," a defence ministry spokesperson said. The stake is likely to be sold in parts over a 10-year period.

MoD gave the approval at a Defence Acquisition Council meeting held last week, PTI reported on Monday, citing defence ministry officials.

Once the finance ministry clears the proposal, MoD will approach the cabinet committee on economic affairs (CCEA) for final approval.

“We cannot talk about the modalities of the divestment. We need finance ministry clearances before that," a senior company official said on condition of anonymity. He declined to comment on the valuation of the company.

Bangalore-based HAL, which was formed in 1964 with the merger of Hindustan Aircraft Ltd with Aeronautics India Ltd and Aircraft Manufacturing Depot, Kanpur, is the government’s designated assembler for the various varieties of defence aircraft that India buys from foreign contractors.

The company has 19 production units and 10 research and design centres, spread across eight locations. It has a revenue of ₹ 13,000 crore.

HAL is currently involved in the development of the light combat aircraft Tejas, an intermediate jet trainer, a light combat helicopter, an advanced light helicopter-weapon system integration (ALH-WSI) and various other military and civil upgrades.In 2002, HAL developed the advanced light helicopter Dhruv.

The company also participates in the country’s space programme through the manufacture of structures for various satellite launch vehicles.

Bharat Electronics Ltd and Bharat Earth Movers Ltd, which are also controlled by MoD, are traded on the stock exchanges.

“There is no clarity on how much the 10% divestment will be valued at," said Rajiv Chib, a defence analyst with PricewaterhouseCoopers.

Former HAL chairman Ashok Baweja said there were no such moves during his tenure, adding that the intention of any divestment would not be to raise funds for any of HAL’s programmes.

“HAL gets its funding from the air force and other service budgets," he said. However, this appeared to be part of a trend to get public involvement in large public sector companies, he said. “HAL has high standards of corporate governance, in terms of audits and the like. This can ensure even more transparency."

Boeing, which has one of the largest offsets procurements lined up from India at about $3 billion (Rs 14,100 crore), welcomed the move.

“HAL is a key component of civil and defence aerospace complex in India, and any further enhancement of capacity and capability at HAL will only help the Indian defence industry and foreign companies meet their offset commitment," said Boeing India president Dinesh Keskar.

Private Indian defence firms such as Mahindra Aerospace, Tata Advanced Systems Ltd and Larsen and Toubro Ltd are expanding their base to get a piece of these offsets, too.Keskar, however, said he does not think the HAL stake sale will hamper the growth of the private sector in defence. “I think the need in India is so vast, there is a share for everybody."

Under its defence procurement procedure, India imposes counter-trade obligations on original equipment manufacturers that are awarded defence contracts worth more than ₹ 300 crore by way of transfer of critical technologies and production of components in India.

To meet this obligation, foreign vendors form partnerships with Indian firms. At present, the offset obligation for the upcoming fighter jet deal to buy 126 aircraft for the Indian Air Force is 50%, which roughly translates into a possible $5 billion of business being generated via the offset route.